MONTERRY, MEXICO — Steady growth in tortilla sales, product innovation and a stake in the “better-for-you” food category helped Gruma USA close a positive second quarter in fiscal 2023, in spite of volatile corn prices. Better-than-expected foodservice performance in an inflationary environment also helped to bolster results.

Operating income at Gruma USA in the second quarter ended June 30 totaled $133.9 million, up 14.4% from $92.2 million in the same period a year ago. Net sales increased 23% to $928.5 million from $755.2 million, reflecting the passing of incremental costs and expenses to the top line of the income statement and a more profitable sales mix, Gruma said.

During the company’s second-quarter earnings call on July 20, Adolfo Werner Fritz, investor relations officer, and Raul Cavazos Morales, chief financial officer of Gruma SAB de CV, discussed the strategies that have led to the company’s year-over-year growth.

“In all, we’re very pleased with our operational performance up to this point for the first half of the year plus our expectations for consolidated EBITDA growth have changed,” Mr. Fritz said. “We’re no longer expecting a flatter contraction in EBITDA margin, but instead, we're expecting a slight expansion relative to 2022. This change is being driven by the positive outlook of our operations in the US and the resilience we have seen in the market.”

Competition in the tortilla sector largely has taken the form of private label brands, which consumers have taken a greater interest in to combat inflationary costs, Gruma said.

“Private label has been increasing its presence relative to, obviously, the inflationary plot pressures that the consumer is feeling in the US or at least a consumer that has been price sensitive,” Mr. Morales said. “So on that end, private label has been taking market share, but at the same time, we have been taking market share also from the overall category growth. So right now, in terms of our competition relative to our performance, we’re very comfortable. And the market share that we’ve been able to take thus far has been supported by our performance in the better-for-you market. And that is a trend that we continue seeing going forward.”

In the past year, Gruma has debuted multiple keto-friendly tortillas in the better-for-you category, under the company’s Guerrero and Mission brands. According to the company, the higher cost of premium products has not resulted in a consumer trade-down.

“Better-for-you has been a great, great source of growth and profitability for us,” Mr. Morales explained. “They’re very successful products. And the key there is the market that we’re catering to with those products.”

Gruma said operating margin at Gruma USA grew 220 basis points during the second quarter to 14.4% from 12.2%. Meanwhile, cost of sales as a percentage of net sales improved 120 basis points to 59.4% from 60.6% in the second quarter of 2022, due to an increase in cost for raw materials and labor as well as greater volume, Gruma said.

Looking ahead, the company is preparing for any volatility in the corn market. A number of factors have affected corn production in the last few years, namely the Russia/Ukraine conflict and unpredictable weather patterns. Other pressure points that were affecting corn prices, such as transportation and inflation, have begun to stabilize, alleviating some of the pressure of market volatility.  

“So in terms of raw materials, I think that the pressures that we felt in the past have stabilized, obviously,” Mr. Morales said. “When you look at how the corn market is behaving, it’s extremely volatile. And now it is a coin toss to know whether the US is going to have moisture or draught in the next harvest. So that will play a huge role in terms of where we’re going to see the corn prices once we get closer to the harvest.

“There’s also inflation around other aspects of our cost structure. For example, the logistics that we had to endure logistic challenges and infrastructure challenges that we had to endure over last year. They’ve been quite meaningful and inflation is still an ongoing phenomenon. It’s not over yet. So as I mentioned a minute ago, we’re still vigilant on how the economy behaves going forward and how inflation hits our cost structure. Based on that we’ll be evaluating how we proceed with the pressures that we feel on a cost structure for next year.”

Overall, majority net income at Gruma SAB de CV in the second quarter was $96.6 million, up 41% from $68.3 million a year ago. EBITDA was $244 million, up 31% from $186.6 million, while net sales rose 24% to $1.66 billion from $1.34 billion.